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ENBANC
COMMISSIONER OF INTERNAL C.T.A. EB NO. 773
REVENUE, (C.T.A. CASE NO. 7242)
Petitioner,
Present:
X -------------------------------------------------------------------------------------------- X
DECISION
PALANCA-ENRIQUEZ, J..:
When the law is clear, there is no other recourse but to apply it regardless
of its perceived harshness. Dura lex sed lex (Obiasca vs. Basallote, 61 3 SCRA 11 9) .
As a court, our duty is to apply the law. We have no choice but to see to it that
THE CASE
Revenue (hereinafter "CIR") under Section 3(b), Rule 8 of the 2005 Revised
199 7 Rules of Civil Procedure, as amended, which seeks to reverse the Decision
dated December 6, 2010 and Resolution dated April 15 , 2011 rendered by the
Second Division of this Court in C.T.A. Case No. 7242, the respective
SO ORDERED."
C.T.A. EB NO. 773 3
(C.T.A. CASE NO . 7242)
DECISION
SO ORDERED."
THE PARTIES
empowered to assess and collect all national internal revenue taxes, fees, and
charges, including the power to decide refunds of internal revenue taxes, fees or
other charges, with office address at the Bureau of Internal Revenue (hereinafter
"BIR") National Office Building, Agham Road, Diliman, Quezon City, where
laws of the Republic of the Philippines, with principal office at Lopez Building,
Ortigas Avenue, Pasig City, and engaged in the business of distributing and
THE FACTS
Board (hereinafter "ERB") an application for the revision of its rate schedules
with a prayer for a provisional approval of the increase, docketed as ERB Case
No. 93-118. On January 28, 1994, the ERB issued an Order granting a
provisional increase of P0.184 per kwh, subject to the condition that after
Thus, MERALCO paid the income tax due on its taxable income based
P2.996 per kwh (i.e., existing average rate of P2.812 per kwh, plus provisional
increase ofP0.184).
increase of only P0.017 per kwh and ordering MERALCO to refund or credit to
its customers the average amount ofP0.167 per kwh beginning February 1994.
The CIR and the Lawyers Against Monopoly and Poverty, et al. appealed
the decision of the Court of Appeals to the Supreme Court, docketed as G.R.
C.T.A. EB NO. 773 5
(C.T.A. CASE NO. 7242)
DECISION
Regulatory Board vs. Manila Electric Company ", and G.R. No. 141369 entitled
"Lawyers Against Monopoly and Poverty (LAMP), et al. vs. Manila Electric
Nos. 141314 and 141369 reversing the decision of the Court of Appeals, the
SO ORDERED."
On May 5, 2003, the decision of the Supreme Court became final and
executory.
years 1994-1998 and 2000-2001, taxable income and income tax liability were
On November 27, 2003, MERALCO filed a claim for tax refund or credit
Division its claim for refund or tax credit of excess income tax payment by way
MERALCO's assertion that the two (2)-year period should be reckoned from
the time the Supreme Court decision came out cannot be sustained; MERALCO
has no cause of action under the provision of solutio indebiti; equity belongs to
those who come to court with clean hands; MERALCO had the opportunity to
claim for refund as early as 1998 when the ERB issued its decision ordering
inequity of MERALCO is further exposed when it prayed for the refund of the
entire amount of alleged erroneously collected income taxes it paid from 1994-
{Mi
C.T.A. EB NO. 773 7
(C.T.A. CASE NO . 7242)
DECISION
1998 and 2000-2001, when it has not even showed proof that it paid all of the
Petition for Review (Ad Cautelam)" with attached "Amended Petition for
Review (Ad Cautelam)" for the purpose of excluding its claim for tax refund or
credit for taxable year 2001 in the amount ofP1,071,546,018.00 on the ground
September 21, 2005 from the CIR partially granting its administrative claim for
refund or credit for taxable year 2001 to the extent of P894,4 73,932.58, but
denying the claim for taxable years 1994-1998 and 2000 due to prescription. In
its "Amended Petition for Review (Ad Cautelam)", MERALCO prayed that it
"Motion for Leave to Amend Petition for Review (Ad Cautelam)", admitted the
"Amended Petition for Review (Ad Cautelam)", and granted the CIR fifteen
November 30, 2006, MERALCO filed its "Reply" to the supplemental answer.
rendered the assailed Decision granting the Amended Petition for Review.
Reconsideration and Clarification", while on December 28, 2010, the CIR filed
her "Motion for Reconsideration". In a Resolution dated April 15, 2011, both
Not satisfied, the CIR filed the instant "Petition for Review" raising the
sole:
ISSUE
Without necessarily giving due course to the Petition for Review, on May
27, 2011, we required MERALCO to file its comment, within ten (1 0) days
from notice.
On June 27, 2011, after it filed a "Motion for Extension of Time to File
memoranda, within thirty (30) days from notice; afterwhich, the petition shall be
its Resolution dated September 28, 2011, and the case was deemed submitted
for decision.
The CIR argues that a claim for refund cannot be made after the two (2)-
year prescriptive period provided under Section 229 of the NIRC of 1997, as
amended. Since the claim for refund covers the taxable periods 1994 to 1998
and 2000, the Petition for Review filed on May 4, 2005 was evidently filed
beyond the prescriptive period, and with the recommendation of denial from the
w
C.T.A. EB NO. 773 10
(C.T.A. CASE NO. 7242)
DECISION
that MERALCO is barred from recovering income taxes paid for the subject
taxable years.
not even the State should enrich itself at the expense of another.
Relying in good faith on the ERB 's issuance of the provisional increase,
the decision of the ERB on the allowable increase, the appeal to the Court of
Appeals and the subsequent decision ofthe Supreme Court in G.R. Nos. 141314
and 141369, MERALCO claims that on said interim periods, it should not be
penalized for declaring for tax purposes the income it derived therefrom, and
At the outset, it must be stressed that the issue raised herein as regards
the reckoning of the two (2)-year prescriptive period under Section 229 is not
novel as said issue had been previously ruled upon by the then six-member
w
C.T.A. EB NO . 773 11
(C.T.A. CASE NO . 7242)
DECISION
CTA En Bane under the ponencia of Associate Justice Juanita C. Castaneda, Jr.
C. TA . EB No. 79, May 23, 2006 ("Atlanta case"), where the CTA En Bane
XXX XXX.
added by P.D. No. 69 dated November 24, 1972 and was retained
in both the 1977 and 1997 National Internal Revenue Code. The
intent of the law is unmistakable, to establish as a condition sine
qua non that all claims and actions for refund of any tax or penalty
shall be filed within two years from the date of payment of such tax
or penalty, 'even if the taxpayer had no cause for refund as the tax
or penalty, was legally collected, and even if after the lapse of the
two-year period, a supervening cause should arise which would
entitle the taxpayer to refund.
On August 22, 2007, the above Resolution of the Supreme Court dated
June 18, 2007 became final and executory and Entry of Judgment was
accordingly issued.
Considering that the Supreme Court had already settled that the reckoning
point of the two (2) year prescriptive period under Section 229 of the NIRC of
supervening cause that may arise after payment, we therefore adhere to said
ruling.
Thus, in this case we reiterate and stress the above settled rule that under
wrongfully collected NIRC tax should be filed within two (2) years from the
date of payment of the tax regardless of any supervening cause that may arise
after payment.
The instant case involves a claim for refund or tax credit of excess
income tax payments for taxable years 1994-1998 and 2000, as a result of the
reduction of the rate per kilowatthour that was granted by the ERB to
~
C.T.A. EB NO. 773 14
(C.T.A. CASE NO. 7242)
DECISION
141369. Hence, MERALCO's claim for refund or credit falls within the ambit
Records show that for taxable years 1994-1998 and 2000, MERALCO
fil ed its annual corporate income tax returns (final adjustment returns) and paid
the income taxes due on its taxable income on April 7, 1995 for taxable year
1994, on April 15, 1996 for taxable year 1995, on April 15, 1997 for taxable
year 1996, on April 15 , 1998 for taxable year 1997, on April 15 , 1999 for
taxable year 1998, and on April 11 , 2001 for taxable year 2000. Counting two
(2) years from April 7, 1995, April 15 , 1996, April 15 , 1997, April 15 , 1998,
April 15 , 1999, and April 11 , 2001 , MERALCO had until the following dates to
Records show, however, that it was only on November 27, 2003 that
MERALCO filed with the CIR its administrative claim for refund or tax credit
of excess income tax payments for the years mentioned, and it was only on May
(MJ_
C.T.A. EB NO. 773 15
(C.T.A. CASE NO. 7242)
DECISION
4, 2005 that MERALCO filed its judicial claim for refund or credit with this
Court in Division. Clearly, both the administrative and judicial claims were
XXX XXX
Corollary thereto, the last sentence of Section 3 (a) (2) , Rule 4 of the 2005
Revised Rules of the CTA, as amended, provides: "xxx Provided, still further,
that in the case of claims for refund of taxes erroneously or illegally collected,
the taxpayer must file a petition for review with the Court prior to the
It is clear from the above provisions that Section 229 uses the phrase
"shall be filed" and not "may be filed", while Section 3 (a) (2) , Rule 4 of the
2005 Revised Rules of the CTA, as amended, uses the phrase "must file" and not
"may file", which clearly show that the two (2)-year period to file the claim for
refund or credit is mandatory, and not merely permissive. The use of the words
We find it hard to agree with the ruling of the Second Division that
MERALCO is entitled to its claim for tax refund or credit for taxable years
1994-1998 and 2000 due to the special circumstance in the instant case and that
the two (2)-year prescriptive period should commence to run only on May 5,
2003, the date the decision of the Supreme Court in G.R. Nos. 141314 and
141369 had become final and executory, as it was only at that time that the right
to claim for a tax refund or credit had become determinable and the basis for the
As the former CTA En Bane had previously ruled in the Atlanta case,
Section 229 of the NIRC of 1997, as amended, does not provide for any
excessively and wrongfully collected income taxes should be correlated with the
quarterly income tax returns and final adjustment returns, respectively. Hence,
as regards corporate income taxes, the two (2)-year prescriptive period under
taxes should be reckoned from the date of filing of the final adjustment return
and payment of the tax thereof. In all other cases, the reckoning point of the
two (2)-year prescriptive period should be from the date of payment of the tax
or penalty, regardless of any supervening cause that may arise after payment.
The two (2)-year period, therefore, cannot be stretched to allow for other special
circumstances, when none has been provided. Where the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for
application (Cebu Portland Cement Company vs. Municipality of Naga, Cebu, 24 SCRA
712). The Court may not construe a statute that is free from doubt (Commissioner
of Internal Revenue vs. American Express International, Inc. (Philippine Branch), 462 SCRA
220).
Internal Revenue Code''), which took effect on January 1, 1973 , and said phrase
had been carried over both in the 1977 Tax Code and NIRC of 1997, as
amended. The phrase having been carried over in every revision of the NIRC,
the lawmaker's intention to establish as a condition sine qua non that all claims
within two years from the date of the payment of the tax or penalty, is very
evident. The two (2)-year period shall always be reckoned from the date of
payment of the tax regardless of any supervening cause that may arise after
payment.
This is because the rationale behind the two (2)-year prescriptive period
is the basic principle that "taxes are the lifeblood of the nation". Thus, in the
"Basic is the principle that ' taxes are the lifeblood of the
nation. ' The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal.
~
C.T.A. EB NO. 773 19
(C.T.A. CASE NO. 7242)
DECISION
Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is
upon taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost importance that
the modes adopted to enforce the collection of taxes levied should
be summary and interfered with as little as possible.
Without the strict observance of the two (2)-year prescriptive period, the
supervening cause arises even after the expiration of the two (2)-year period,
thus making the phrase "regardless of any supervening cause" futile and
inoperative.
Therefore, MERALCO's claim for refund should have been filed within
the two (2)-year prescribed period, reckoned from the dates the income taxes
thereon had been paid, and not from May 5, 2003, the date the decision of the
Supreme Court in G.R. Nos. 141314 and 141369 had become final and
Court are both extraneous matters that occurred after payment of the tax, hence,
MERALCO cannot invoke the rule of solutio indebiti to justify its claim
for refund.
In the case of Bank of the Philippine Islands vs. Sarmiento, 484 SCRA
payment is made when there exists no binding relation between the payor, who
has no duty to pay, and the person who received the payment; and (2) the
payment is made through mistake, and not through liberality or some other
cause.
Both elements are lacking in the present case. First, there exists a binding
to pay income taxes on the income it declared in its income tax returns for the
MERALCO when it paid income taxes to the BIR for the years 1994-1998 and
2000. MERALCO was fully aware ofthe status of its application for revision of
its rate schedule and the proceedings that transpired thereafter. It was fully
aware that the increase granted to it in the ERB Order dated January 28, 1994
was merely provisional and subject to the condition that after hearing and
future consumption. At the outset, when the ERB provisionally granted and
Thusly:
xxx xxx" (Uy vs. Public Estates Authority, 589 SCRA 20) .
support of its claim for refund or credit on the ground of equity considerations,
We cannot likewise agree with the Second Division's ruling that "if the
Basic is the rule that equity is applied only in the absence of, and never
against statutory law or judicial rules of procedure (Mendio la vs. Court of Appeals,
of St. Mathew Christian Academy vs. Metropolitan Bank and Trust Co., 614
SCRA 61-62).
Verily, equity will operate only in cases where there are no applicable
law or rule or when the provisions and interpretation of the law are doubtful,
In this case, considering the clear and explicit provision of Section 229 of
the NIRC of 1997, as amended, equity will not apply; otherwise, it would be
MERALCO's claim for refund for having been filed way beyond the two (2)-
reversed.
Resolution dated April 15, 2011 rendered by the Second Division in C.T.A.
Case No. 7242 are hereby REVERSED and SET ASIDE. The Petition for
for having been filed way beyond the two (2)-year prescribed period.
SO ORDERED.
WE CONCUR:
L-u.- o~
ERNESTO D. ACOSTA
Associate Justice
Q_~,;, c.. ~~ ~ .
<{With Separate Concurring o(fl'ifi~n)
JUANITO C. CASTANEDA, JR.
Associate Justice Assoc ate Justice
ER~UY
Dissenting Opinion)
CAESAR A. CASANOVA
As~~~~ice Associate Justice
~ N .M~~,CnJL
(I join the Dissenting Opinion of
Justice Lovell R. Bautista)
CIELITO N. MINDARO-GRULLA
Associate Justice
~~~4-4-
(1 join the Dissenting Opinion of Justice Lovell R. Bautista)
AMELIA R. COTANGCO-MANALASTAS
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby
certified that the above Decision has been reached in consultation with the
members of the Court En Bane before the case was assigned to the writer of the
opinion of the Court.
L~ - v~
ERNESTO D. ACOSTA
Presiding Justice
REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS
QUEZON CITY
ENBANC
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner, CTA EB No. 773
(CTA Case No. 7242)
Present:
Acosta, P.J.,
Castaneda, Jr.,
-versus- Bautista,
Uy,
Casanova,
Palanca-Enriquez,
Fa bon-Victorino,
Mindaro-Grulla, and
Cotangco-Manalastas, JJ.
MANILA ELECTRIC COMPANY,
INC.,
Respondent. Promulgated:
!lf<l/t~~
MAY 0 B2012 /,:\;"o ~-~ ,
,
x----------------------------------------------------------------------------------x
SEPARATE CONCURRING OPINION
Enriquez and vote to GRANT the Petition for Review based on the grounds set
I.
The claim has already prescribed.
In a claim for refund, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as non-
observance of the prescriptive periods within which to file the administrative and ~
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 3 of 18
1
the judicial claims would result in the denial of his claim. Section 229 of the
1997 National Internal Revenue Code (NIRC) allows the taxpayer a period of two
(2) years from date of payment of the tax regardless of any supervening
cause within which to file a claim for refund. This provision, which is,
categorically states:
The law is clear and unambiguous. Under the verba legis rule, if the words
of the law are clear, plain, and free from ambiguity, it must be given its literal j€=-
1
Commissioner of Internal Revenue v. Aichi Forging Company ofAsia, Inc., G.R. No. 184823, October 6, 20 10, 632
SCRA 422.
2
Guagua Electric Light Plant Co., Inc. vs. Collector of internal Revenue, G.R. No. 14421 , April 29, 196 1, I SCRA
1221, 1225.
Separate Concurring Opinion
CfA EB No. 773 (CfA Case No. 7242)
Page 4 of 18
3
meaning and applied without any interpretation, the need for interpretation is
4
obviated, no plausible pretense being entertained to justify non-compliance. All
that has to be done is to apply it in every case that falls within its terms. 5
Applying the above provision to the instant case, prescription has already
set in, both in the administrative level (November 27, 2003) and judicial level
(May 4, 2005) for the taxable years 1994-1998 and 2000. As expressly stated by
law, the two (2)-year prescriptive period has already lapsed reckoned from the
date of payment of the tax without consideration to any supervening cause that
espouses the rationale behind the two (2)-year prescriptive period which rests on
the basic principles that "taxes are the lifeblood of the nation." Corollarily, a
sound taxation requires that there is fiscal adequacy. The proceeds of tax
revenue should coincide with, and approximate the needs of, government~
3
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, G.R. No. 1596 10, June 12, 2008, 554 SCRA
398.
4
Carmelino F. Pansacola vs. Commissioner of Internal Revenue, G.R. No. 15999 1, November 16, 2006, 507 SCRA 8 1
citing the case of Allied Brokerage Corporation vs. Commissioner of Customs, No. L- 2764 1, August 3 1, 197 1, 40
SC RA 555, 559, 560.
5
Ibid.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 5 of 18
The court disregarded the supervening causes such as the rescission of dacion
Purpose Vehicle Act" in reckoning the 2-year prescriptive period. The court
explained that the availability of funds from the collection of taxes cannot
certain acts which are solely within the exclusive control of the private
Without the strict observance of the prescriptive period, the government will
always be at the losing end, refunding the taxes whenever supervening cause
arises even after the expiration of the two (2)-yea r period and making the
addition, claims for refund or tax credit should be exercised within the time fixed
by law because the BIR being an administrative body enforced to collect taxes,
its functions should not be unduly delayed or hampered by incidental matters. 9 ft--
6
Vitug and Acosta, Tax Law and Jurisprudence, Third Edition, page 2.
7
C.T.A. EB No. 79, May 23, 2006. Penned by Associate Justice Juanito C. Castaneda, Jr., with Presiding Justice
Ernesto D. Acosta, Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga Palanca-
Enriquez, concurring. Affirmed in G.R. No. 172773 dated June 18, 2007.
8
/bid.
9
Philippine Bank ofCommunications vs. Commissioner of Internal Revenue, G.R. No. 112024, January 28, 1999,302
SCRA 241, 250.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 6 of 18
In the recent case of United States vs. Clintwood Elkhorn Mining Co. et
a!., 10 (Clintwood case) US Supreme Court was unanimous in holding that the US
Internal Revenue Code which provides for a two (2) and three (3)-year period of
limitations in a claim for refund prevails over the longer period of limitations
under the Tucker Act. In the said case, the taxpayers sought the refund of coal
explained the rationale of the period of limitation in a claim for tax refund in this
wise:
limitation under its tax code despite the constitutional nature of the taxpayer's
only after it has been unlawfully exacted. 12 Nonetheless, the US Supreme Court
rejected the claim for failure to comply with the refund scheme and for being
11
Supra note I 0.
12
Supra note I 0.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 9 of 18
consumers, it unqualifiedly asserted its right over the amount and voluntarily )k-
13
Supra note I 0.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 10 of 18
reported the same as income, hence, prescription begins to run when petitioner
property and treats it as its own under the claim of right that the payments are
made absolutely and not contingently, such amounts are included in the
taxpayer's income, even though the right to the income has not been perfected
at that time. It does not matter that the taxpayer's title to the property is in
dispute and that the property may later be recovered from the taxpayer. 14
several cases involving public utilities one of which is the case of Brooklyn Union
15
Gas Co. v. Comm./ 62 F2d 505 (CCA2 1933) (Brooklyn case). Brooklyn the
utility company, in the course of rate dispute, had certain funds made available
security bond or securities of equal value. The taxpayer preferred not to take the
funds on such conditions, and instead took them at the conclusion of litigation
two years later. The taxpayer realized income in the earlier year under the claim-
of-right rule, because the taxpayer had the power to secure the release of the
funds, that is, there remained no effective restriction upon the taxpayer's
dominion over them. In the present case, Meralco actually received and ~
14
Merten 's The Law of Federal Income Taxation , Section 12A. l45, Volume 2, (1995) citing Safety Tube Corp. v.
Comm., 8 TC 757 (1947), atfd 168 F2d 787 (CCA6 1948); Westover Co. v. Smyth, 43 AFTR 1283 (ND Cal 1951),
citing Mertens text; Johns v. Comm ., TC Memo 1956-119; Mensik v. Comm., 37 TC 703 (1962), affd 328 F2d 147
(CA7 1964); Marquardt Corp. v. Comm., 39 TC 443 ( 1962).
15
As cited in Merten 's The Law of Federal Income Taxation, Section 12A.l52, Volume 2, ( 1995).
Separat e Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 11 of 18
In the case of S. Lowenstein & Son Inc. v. Comm., 21 TC 648, affd 222
0
F2d 919 (CA6 1955)/ it was ruled that the taxpayer's renunciation in a
defeat the earlier inclusion, but enables only the deduction in that
subsequent year.
Philippine income tax law is patterned after its US counterpart. 21 The local
application of the claim of right doctrine was explained in the book Philippine~
16
Supra note 15, Section 12A.146 citing Gaddis v. US., 330 F Supp 74 1 (D Miss 1971 ).
17
Supra note 15, Section 12A. 146 citing E.g., IRC Section 162(a). See Grandview Mines v. Comm., 32 TC 759 ( 1959),
affd 282 F2d 700 (CA9 1060); Berger v. Comm. , 37 TC 1026 (1962). See also Equitable Life Ins. Co. oflowa v. U.S.,
340 F2d 9 (CA8 1965); National Life & Accident Ins. Co v. U.S., 244 F Supp 135 (MD Tenn 1965), citing Mertens
text, affd 385 F2d 832 (CA6 1967) (deductions under life insurance companies' provisions of the Code).
18
Ibid., citing Oswald v. Comm., 49 TC 645 ( 1968).
19
Ibid., citing Comm. V. Switlik, 184 F2d 299 (CA3 1950); O ' Meara v. Comm., 8 TC 622 ( 1947).
20
As cited in Merten 's The Law of Federal Income Taxation, Section 12A. I46, Volume 2, (1995).
21
Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191 , November 25, 2003, 416 SCRA
436, 453.
Separate Concurring Opinion
GA EB No. 773 (GA Case No. 7242)
Page 12 of 18
22
Income Tax citing the case of Commissioner of Internal Revenue vs. Javier,
22
Victori no C. Mamalateo, 20 I 0 edition, pages 79-80.
23
G.R. No. 78953, Ju ly 3 1, 199 1, 199 SCRA 824.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 13 of 18
the recognition of income and deduction under the NIRC of 1997, Meralco
recognized a bona fide claim over the amounts received out of its overcharged
rate as early as 1995 and not when the Decision of the Supreme Court became
final on 2003. It is proper that the overcharges be taxed at the time of income
recognition. A fortiori, the two (2)-year prescriptive period for filing a claim for
refund should be reckoned from the time when income was recognized, i.e. "the
date of payment of the tax or penalty regardless of any supervening cause that
24
may arise after payment xxx. "
In the case of North American Oil Consolidated v. Burnet, 286 U.S. 417
5
(1932)/ (North American case) the United States Supreme Court held that
North American became entitled to the funds in 1917 under a claim of right, the
year when it received funds subject of ongoing litigation NOT in the year 1922
when the case was finally resolved . Such rule gave substance to the annual
accounting period as it afforded finality to the tax year by not holding it open J-c--
24
Section 229 ofthe 1997 NIRC.
25
Cited by Sanford M. Guerin and Philip F. Postlewaite, Problems and Materials in Federal Income Taxation , Fourth
Edition, 1994, pages 824-826.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 14 of 18
until the eventual resolution of the dispute. 26 Following this argument, the
reckoning of the two (2)-year prescriptive period under Section 229 of 1997
NIRC shou ld all the more apply in this case counting from the filing of ITR and
before the Supreme Court decided the case with finality. Meralco's provisional
For taxable year 1994, the reckoning of the two (2)-year period should be
income. The same applies for succeeding taxable years as shown below:
26
Ibid.
27
Respondent' s Formal Offer of Evidence, Exhibit "FF"
28
Respondent's Formal Offer of Evidence, Exhibit " II"
29
Respondent's Formal Offer of Evidence, Exhibit " LL"
30
Respondent's Formal Offer of Evidence, Exhibit "00"
31
Respondent's Formal Offer of Evidence, Exhibit " RR"
32
Respondent' s Formal Offer of Ev idence, Exhibit "XX"
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 15 of 18
apply, then petitioner should NOT have recognized the overcharges as income
from the time it filed its annual ITRs. American jurisprudence, having persuasive
effect in our jurisdiction, dictates that in order to avoid the application of the
its obligation to repay the amount received and make provision for repayment.
the time it filed its annual ITRs. It already claimed a right over an income
knowing fully well the uncertainty and possible reversal of its case before the
Supreme Court. When it took the risk of imposing higher rates to its consumers,
it also assumed the risk of paying excess income taxes bearing in mind that the
prescriptive period for refund disregards any supervening cause that may arise
after payment.
American and Brooklyn, the final termination of the litigation was not considered
33
As cited in Merten ' s The Law of Federal Income Taxation , Section 12A. I50, Volume 2, ( 1995) citing Nordberg v.
Comm., 79 TC 655 ( 1982), affd 720 F2d 658 (CA l 1983), quoting Hope v. Comm ., 55 TC 1020 (197 1), affd 471 F2d
738 (CA3 1972), cert den 4 14 US 824 ( 1973).
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 16 of 18
II.
The claim was not duly proven.
Tax refunds are in the nature of tax exemptions. As such, they are
proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law and cannot be
35
permitted to exist upon vague implications. Since tax refunds partake of the
nature of tax exemptions, which are construed strictissimi juris against the
taxpayer, evidence in support of a claim must likewise be strictissimi scrutinized
36
and duly proven.
Assuming without conceding, Meralco's claim has not yet prescribed, the
claim is at best premature and would still fail with respect to the overcharges not
yet refunded to petitioner's consumers. The amount to be refunded has not yet
34
Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., G. R. No. 127 105, Ju ne 25, 1999,309 SCRA 87,
I 08 citing Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332; Province of Tar lac vs.
Alcantara, 2 16 SCRA 790, Magsaysay Lines, Inc. vs. Court ofAppeals, 260 SCRA 5 13.
35
Ibid.
36
Commissioner of Internal Revenue vs. Far East Bank & Trust Co. (now BPI), G.R. No. 173854, March 15, 20 10,
6 15 SCRA 4 17, 43 1 citing Atlas Consolidated Mining and Development Corporation v. Comm issioner of Internal
Revenue, G. R. No. 159490, February 18, 2008, 546 SCRA 150, 163.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 17 of 18
Statements37 for the year ended December 31, 2007, assuming the previous
consumers. Meralco admitted that some of the electric service accounts of its
probability that the entire gross refund amount of P30,230,092,522.39 may not
be fully refunded or credited to future consumption. 38 This only shows that the
instant case would still fail due to insufficiency of evidence to determine whether
tax, the tax base of which is still within the coffers of Meralco and may or may
not be repaid to its consumers. Until and unless repayment can be ascertained,
Meralco's overcharges are still considered income under the claim of right
doctrine, thus, the claim for refund under this situation must fail.
In light of the foregoing, I vote to GRANT the "Petition for Review" filed
37
Respondent' s Formal Offer of Evidence, Exhibit " PPP"
38
Respondent' s Motion for Partial Reconsideration and Clarification, Division docket p. 1259.
Separate Concurring Opinion
CTA EB No. 773 (CTA Case No. 7242)
Page 18 of 18
the Decision dated December 6, 2010 and Resolution dated April 15, 2011
a~~e~u
~UANITO C. CASTANEDA,<IJR~ -
Associate Justice
REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY
En Bane
X-------------------------------------------------------------------------------------------------X
I DISSENTING OPINION
BAUTISTA,[.:
Applying the basic postulate that no one should unjustly enrich himself at
the expense of anotl1er, the caveat likewise covers the government,! the return of
what was erroneously paid - respondent's right to claim for refund - emanates
. from the said principle, and not from Section 229 of the 1997 NIRC, as amended.
In conh·ast to the disquisition made by the majority, I find the Petition for
1 Conunissioner of Internal Rev enue v. Mirant Pagbilao Corporation [Formerly Southern Energy Quezon,
Inc.]. G.R. No. 172129, September 12, 2008, 565 SCRA 154, citing Commissioner of lntemal Revenue v. Fireman 's
Fnmi ln'"mna CD., No. L-30644, M"d' 9, 1987, 148 SCRA 315. ~
DISSENTING OPINION
CT A EB CASE NO. 773 (CT A Case No. 7242)
Page 2 of 11
It is h·ue that the above-quoted provision explicitly states that "[i]n any case,
no such suit or proceeding shall be filed after the expiration of two (2) years from the date
of payment of the tax or penalty regardless of any supervening cause that may arise after
payment," the factual milieu surrounding the case at bench, however, deserves this
Based on the records of the case, on January 28, 1994, the then Energy
Regulatory Board ("ERB") issued an Order, docketed as ERB Case No. 93-118,
In the event, however, that the Board finds, after hearing and
r
submission by the Commission on Audit of an audit report on the
books and records of account of the applicant, that the latter is entitled
to a lesser increase in rates, all excess amounts collected from the
applicant's customers as a result of this Order shall be refunded
'.
DISSENTING OPINION
CT A EB CASE NO. 773 (CT A Case No. 7242)
Page 3 of 11
SO ORDERED.3
case of Manila Electric Company v. Energy Regulatory Board, et al., docketed as CA-
SO ORDERED.4
Lastly, on November 15, 2002, the Supreme Court rendered the following
in the case of Republic of the Philippines, et al., v. Manila Electric Company, Inc.,
From the issuance of the ERB Order dated January 28, 1994 that respondent
MERALCO was authorized to adopt and implement the rate adjusb.nent in the
average amount of P0.184 per kilowatiliour, effective with the billing cycles
beginning February 1994, until the Supreme Court finally ruled that only a rate
reasonable, the case at bench may have consequences which cannot just be simply
December 6, 2010, "the special circumstance in the instant case demands that it be
given a different n·eab.nent. While MERALCO diligently filed its final adjusb.nent
4 !d., at p. 245 .
s /d., at p . 273 .
DISSENTING OPINION
O'A EB CASE NO. 773 (O'A Case No. 7242)
Page 5 of 11
return and paid the income tax thereon, it is beyond cavil that neither the right to
claim for refund can be determined nor there was basis for MERALCO to know
that the income tax payments for the taxable years 1994-1998 and 2000 were
erroneous and excessive. Such fact arose only when the Supreme Court's
Decision in G.R. Nos. 141314 and 141369 became final and executory on May 5,
The Supreme Court has in the past sanctioned the application of the
provisions on solutio indebiti in cases when taxes were collected thru error or
mistake.8 Thus, a claim for refund must be commenced within six (6) years in
6 Rollo, p.43.
7 Ibid., p. 44.
8 Commissioner of Internal Revenue v. Philippine Phosphate Fertilizer Corporation, G.R. No. 144440,
September 1, 2004, citing Gonzalo Puyat & Sons, Inc. v. Citjt of Manila, et al., 117 Phil. 985, 989 (1963) . See also
Citibank N.A. v. Court of Appeals, 345 Phil. 695, 713 (2001) .
9 ART. 1145. The following actions must be conunenced wiU1in six years:
I
SXX XXX XXX
(2) Upon a quasi-contract.
to Supra, note 8, citing Ramie Textiles, Inc. v. Han. Mathay, Sr., G.R. No. L-32364, April 30, 1979, 89 SCRA 586,
592; N•ti•MI o~Iopmrn t Comp""y v C£bu City, G. R. No. 51593, N_,., 5, 1992, 215 5CRA 382, 396.
DISSENTING OPINION
cr A EB CASE NO. 773 (Cf A Case No. 7242)
Page 6 o£11
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a person's unjust enrichment
at the expense of another. The dynamic of erroneous payment of tax
fits to a tee the prototypic quasi-contract, solutio indebiti, which covers
not only mistake in fact but also mistake in law.
In the case at bench, and for emphasis, it was only on May 5, 2003 that the
income tax payments for the subject years being claimed for refund were
Reckoning from the time the Supreme Court's ruling became final on May
5, 2003, respondent had until May 5, 2009 within which to file its claim under the
principle of solutio indebiti; the administrative claim was filed on November 23,
2003, while the Petition for Review before this Court was filed on May 4, 2005.
For this Court to rule that the right to recover its excess income tax has
prescribed under the foregoing circumstances would be to deprive the law of its
Thus, the principle of solutio indebiti should be applied in the present case.
The government should not use technicalities to hold on to money that does not
belong to it.13
I further quote with approval the ruling made in the assailed Decision, to
wit:
12Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318, August 28, 1996, 261 SCRA 144, 168.
r
13Southern Philippines Power Corporation v. Conunissioner of Internal Revenue, G.R. No. 179632, October
19, 2011, d ti"g Store Umd /"'"""""/ Coryomtioo v. Commi"''"" of'"'"'"/ R""""'· G.R. No. 171956, J o J
18,2008,542 SCRA 114, 123.
DISSENTING OPINION
CfA EB CASE NO. 773 (CfA Case No. 7242)
Page 8 of 11
million, net of tax effect for 1999 of ~1,126 million (see Note
23), were accounted for as an exh·aordinary loss in the 2002
statement of income. Refunds covering the period Janua1y
1, 2002 to December 31, 2002, amounting to ro,785 million
were reflected as a reversal of 2002 revenues. The related
tax effect of ~1,133 million is reflected as a reduction in the
provision for income tax (see Note 23). The Company's
revenues for the first five months of 2003 were adjusted to
reflect a rollback of its distribution rates totalling
approximately ~1,595 million."
Amount of Refund
Period Covered
(in millions)
Feb. 1994 to December 31, 2001 ~ 24,943
Jan. 1, 2002 to Dec. 31, 2002 3,785
Jan. 1 to May 2003 1,595
12 30,323
And considering that the basis of the present claim for refund is the
pursuant to ERB's Order dated January 28,1994, which was subsequently lowered
by ERB's Decision dated February 16, 1998, and resolved with finality by the
Supreme Court in the case of Republic of the Philippines, et al., v. Manila Electric
Company, Inc,15 I see no reason to deviate from the pronouncement that the order
respondent can recover all the excess income tax payments without
Accordingly, I vote for the DENIAL of the Petition for Review for lack of
merit. Therefore, the impugned Decision dated December 6, 2010 and Resolution
dated Apri115, 2011, in CTA Case No. 7242 should be AFFIRMED in toto.
WE CONCUR:
-#---
CAESAR A. CASANOVA
~N.M~~-C~
CIELITO N. MINDARO-GRULLA
Associate Justice Associate Justice
AMELIA R. COTANGCO-MANALASTAS
Associate Justice
15 G.R. Nos. 141314 and 141369, N ovember 15, 2002, 391 SCRA 700.